Colfax Reports Second Quarter 2018 Results

8/6/2018, 12:28 PM (Source: GlobeNewswire)

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ANNAPOLIS JUNCTION, MD, Aug. 06, 2018 (GLOBE NEWSWIRE) --

      •         Reported net income from continuing operations per diluted share of $0.52 versus $0.30 in the prior year quarter; adjusted net income per share of $0.61 versus $0.45 in the prior year quarter
      •         Achieved strong organic growth in Fabrication Technology sales and Air & Gas Handling industrial sector orders; strengthened adjusted operating margins
      •         Increased full year adjusted net income per share outlook
      •         Signed agreement for a complementary Fabrication Technology acquisition; repurchased Colfax shares

Colfax Corporation (NYSE: CFX), a leading diversified industrial technology company, today announced its financial results for the second quarter of 2018.

The Company reported net income from continuing operations of $68 million or $0.52 per diluted share, compared to $0.30 in the prior year quarter. Colfax also reported second quarter 2018 adjusted net income of $75 million or $0.61 per share compared to $0.45 per share for the same prior year period.

Second quarter 2018 net sales of $925 million were 9% higher than the comparable period of 2017. Excluding acquisitions and foreign currency translation effects (FX), Fabrication Technology segment sales grew 8.2%, and Air & Gas Handling segment sales decreased 13.1%. Second quarter 2018 Air & Gas Handling orders increased 5.8% to $360 million compared to the prior year period. Excluding acquisitions and FX, orders decreased 10.7%. Sequentially from the first quarter of 2018, second quarter adjusted operating margins increased 90 basis points to 8.9%. Fabrication Technology segment operating income margins sequentially increased 70 basis points to 12.7%, and Air & Gas Handling margins increased 60 basis points to 7.3%.

As a result of second quarter performance, Colfax increased its adjusted earnings per share outlook for the year from $2.05-$2.20 to $2.15-$2.30 and expects its seasonally highest profits in the fourth quarter.

“Second quarter operating performance was in-line with our expectations, and we drove tax actions that allowed us to outperform,” said Matt Trerotola, Colfax President and CEO. “Recent acquisitions are performing as expected, the Fabrication Technology business posted significant global growth, and Air & Gas Handling operating margins expanded sequentially from the first quarter as expected. Air & Gas Handling industrial segment orders grew organically 24% year over year in the quarter, reflecting the successful long-term diversification of the business into higher-growth, less cyclical end markets. We expect strong performance in the second half of 2018, led by continued Fabrication Technology business growth, improved Air & Gas Handling margins, and benefits from the increased scope of our restructuring actions.”

The Company signed an agreement in the second quarter to acquire Gas Control Equipment (GCE), a European leader in industrial gas flow equipment serving critical applications. GCE is projected to close in the third quarter of this year following regulatory approval and other closing conditions, and the Company expects the business to contribute annual revenues in excess of $100 million. Colfax has repurchased $200 million of its common stock since May, including $144 million during the second quarter.

“We continue to execute our disciplined capital allocation strategy to create long-term value,” said Mr. Trerotola. “Our strong balance sheet and cash flow enable us to invest for long-term growth and take the opportunity to invest in our shares at an attractive value. The GCE acquisition complements our Fabrication Technology business with improved scale and customer reach while increasing our presence in specialty gas applications, and we look forward to completing the transaction and welcoming the GCE associates to the Colfax team.”

During the second quarter, the Company divested its CIRCOR International, Inc. shares for net cash proceeds of $139 million, successfully completing the December 2017 divestiture of its Fluid Handling business to CIRCOR.

Conference Call and Webcast

Colfax will host a conference call to provide details about its results today at 8:30 a.m. EDT. The call will be open to the public through +1-877-303-7908 (U.S. callers) or +1-678-373-0875 (international callers) and referencing the conference ID number 3078073 or through webcast via Colfax’s website at www.colfaxcorp.com under the “Investors” section. Access to a supplemental slide presentation can also be found at the Colfax website under the same heading. Both the audio of this call and the slide presentation will be archived on the website later today and will be available until the next quarterly call.

About Colfax Corporation

Colfax Corporation is a leading diversified industrial technology company that provides air & gas handling and fabrication technology products and services to customers around the world principally under the Howden and ESAB brands. Colfax believes that its brands are among the most highly recognized in each of the markets that it serves. The Company uses its Colfax Business System (CBS), a comprehensive set of tools, processes and values, to create superior value for customers, shareholders and associates. Colfax is traded on the NYSE under the ticker “CFX.” Additional information about Colfax is available at www.colfaxcorp.com.

Non-GAAP Financial Measures and Other Adjustments

Colfax has provided in this press release financial information that has not been prepared in accordance with GAAP. These non-GAAP financial measures are adjusted net income, adjusted net income per share, projected adjusted net income per share, adjusted operating income, organic sales growth, and organic order decline. Adjusted operating income excludes Restructuring and other related items, gain or loss on short term investments, Goodwill and intangible asset impairment charge and Pension settlement loss. Adjusted net income, adjusted net income per share and projected adjusted net income per share exclude Restructuring and other related charges, gain or loss on short term investments, Goodwill and intangible asset impairment charge, Pension settlement loss, acquisition-related intangibles amortization, and other non-cash acquisition related charges. The effective tax rates used to calculate adjusted net income and adjusted net income per share are 15.0% and 17.9% for the second quarter and six months ended June 29, 2018. The effective tax rates used to calculate adjusted net income and adjusted net income per share are 29.6% and 28.0% for the second quarter and six months ended June 30, 2017. Organic sales growth and organic order decline exclude the impact of acquisitions and foreign exchange rate fluctuations. These non-GAAP financial measures assist Colfax management in comparing its operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete restructuring plans that are fundamentally different from the ongoing productivity improvements of the Company. Colfax management also believes that presenting these measures allows investors to view its performance using the same measures that the Company uses in evaluating its financial and business performance and trends.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of non-GAAP financial measures presented above to GAAP results has been provided in the financial tables included in this press release.

CAUTIONARY NOTE CONCERNING FORWARD LOOKING STATEMENTS

This press release may contain forward-looking statements, including forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, but are not limited to, statements concerning Colfax’s plans, objectives, expectations and intentions and other statements that are not historical or current fact. Forward-looking statements are based on Colfax’s current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. Factors that could cause Colfax’s results to differ materially from current expectations include, but are not limited to, factors detailed in Colfax’s reports filed with the U.S. Securities and Exchange Commission including its 2017 Annual Report on Form 10-K under the caption “Risk Factors.” In addition, these statements are based on a number of assumptions that are subject to change. This press release speaks only as of the date hereof. Colfax disclaims any duty to update the information herein.

The term “Colfax” in reference to the activities described in this press release may mean one or more of Colfax’s global operating subsidiaries and/or their internal business divisions and does not necessarily indicate activities engaged in by Colfax Corporation.



Colfax Corporation
Condensed Consolidated Statements of Income
Dollars in thousands, except per share data
(Unaudited)

 Three Months Ended Six Months Ended
 June 29, 2018 June 30, 2017 June 29, 2018 June 30, 2017
        
Net sales$925,288  $847,962  $1,806,213  $1,581,592 
Cost of sales637,854  589,898  1,248,159  1,083,699 
Gross profit287,434  258,064  558,054  497,893 
Selling, general and administrative expense204,784  176,882  405,303  351,715 
Restructuring and other related charges16,946  11,060  24,875  15,833 
Operating income65,704  70,122  127,876  130,345 
Interest expense, net9,680  8,524  19,268  17,778 
(Gain) loss on short term investments(4,591)    10,128   
Income from continuing operations before income taxes60,615  61,598  98,480  112,567 
(Benefit) provision for income taxes(6,893)  19,734  (907)  32,312 
Net income from continuing operations67,508  41,864  99,387  80,255 
(Loss) income from discontinued operations, net of taxes(1)(25,729)  16,611  (28,566)  19,707 
Net income41,779  58,475  70,821  99,962 
Less: income attributable to noncontrolling interest, net of taxes3,322  5,081  7,829  8,026 
Net income attributable to Colfax Corporation38,457  53,394  62,992  91,936 
Net income (loss) per share - basic       
Continuing operations$0.52  $0.30  $0.74  $0.59 
Discontinued operations$(0.21)  $0.13  $(0.23)  $0.16 
Consolidated operations$0.31  $0.43  $0.51  $0.75 
Net (loss) income per share - diluted       
Continuing operations$0.52  $0.30  $0.74  $0.58 
Discontinued operations$(0.21)  $0.13  $(0.23)  $0.16 
Consolidated operations$0.31  $0.43  $0.51  $0.74 

(1) The loss from discontinued operations, net of taxes in the quarter ended June 29, 2018 includes an $18.0 million tax provision primarily related to the gain on the sale of the Fluid Handling business and a $4.3 million loss to adjust for the final consideration related to the sale. See the Company’s Form 10-K for the year ended December 31, 2017 and Form 10-Q for the quarter ended June 29, 2018 for additional information regarding the divestiture.


Colfax Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
Amounts in thousands, except per share data
(Unaudited)

 Three Months Ended Six Months Ended
 June 29, 2018 June 30, 2017 June 29, 2018 June 30, 2017
Adjusted Net Income and Adjusted Net Income Per Share 
Net income from continuing operations attributable to Colfax Corporation (1)$64,186  $36,783  $91,558  $72,229 
Restructuring and other related charges- pretax16,946  11,060  24,875  15,833 
Acquisition-related amortization and other non-cash charges- pretax (2)19,381  13,683  40,062  27,077 
(Gain) Loss on short term investments-pretax(4,591)    10,128   
Tax adjustment (3)(20,740)  (5,823)  (31,897)  (11,221) 
Adjusted net income from continuing operations$75,182  $55,703  $134,726  $103,918 
Adjusted net income margin from continuing operations8.1%  6.6%  7.5%  6.6% 
Weighted-average shares outstanding - diluted122,973  123,954  123,510  123,881 
        
Adjusted net income per share continuing operations$0.61  $0.45  $1.09  $0.84 
        
Net income per share- diluted from continuing operations (GAAP)$0.52  $0.30  $0.74  $0.58 


 Updated Guidance Previous Guidance
 Low High Low High
2018 Earnings Per Share       
Projected net income per share from continuing operations (GAAP)- diluted$1.19  $1.35  $1.22  $1.37 
Restructuring and other related charges- pretax0.58  0.58  0.31  0.31 
Acquisition-related amortization and other non-cash charges- pretax(2)0.61  0.61  0.60  0.60 
Loss on short term investments- pretax0.08  0.08  0.12  0.12 
Tax adjustment (3)(0.31)  (0.32)  (0.20)  (0.20) 
Projected adjusted net income per share$2.15  $2.30  $2.05  $2.20 

__________
(1) Net income from continuing operations attributable to Colfax Corporation for the respective periods is calculated using Net income from continuing operations less the income attributable to noncontrolling interest, net of taxes.
(2) Includes amortization of acquired intangibles and fair value charges on acquired inventory.

(3) The effective tax rates used to calculate adjusted net income and adjusted net income per share for the second quarter and six months ended June 29, 2018 are 15.0% and 17.9%, respectively. These rates exclude the benefit of a $12.5 million deferred tax asset valuation allowance reversal. The effective tax rates used to calculate adjusted net income and adjusted net income per share for the second quarter and six months ended June 30, 2017 are 29.6% and 28.0%, respectively. The estimated effective tax rate for adjusted net income and adjusted net income per share for the year ended December 31, 2018 is 20-22%.


Colfax Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
Dollars in thousands
(Unaudited)

 Three Months Ended Six Months Ended
 June 29, 2018 June 30, 2017 June 29, 2018 June 30, 2017
Continuing Operations       
Operating income$65,704  $70,122  $127,876  $130,345 
Operating income margin7.1%  8.3%  7.1%  8.2% 
Restructuring and other related charges16,946  11,060  24,875  15,833 
Adjusted operating income$82,650  $81,182  $152,751  $146,178 
Adjusted operating income margin8.9%  9.6%  8.5%  9.2% 


Colfax Corporation
Change in Sales, Orders and Backlog
Dollars in millions
(Unaudited)

     Air and Gas Handling
 Net Sales Orders
 $ % $ %
  
For the three months ended June 30, 2017$848.0    $339.8   
Components of Change:       
Existing businesses(1)(6.0)  (0.7)%  (36.4)  (10.7)% 
Acquisitions(2)70.1  8.3%  43.5  12.8% 
Foreign currency translation13.2  1.6%  12.7  3.7% 
 77.3  9.1%  19.8  5.8% 
For the three months ended June 29, 2018$925.3    $359.6   


     Air and Gas Handling
 Net Sales Orders Backlog at Period End
 $ % $ % $ %
            
As of and for the six months ended June 30, 2017$1,581.6    $675.4    $874.1   
Components of Change:           
Existing businesses(1)30.0  1.9%  (119.9)  (17.8)%  (141.7)  (16.2)% 
Acquisitions(2)138.9  8.8%  90.2  13.4%  101.2  11.6% 
Foreign currency translation55.7  3.5%  41.0  6.1%  3.9  0.4% 
 224.6  14.2%  11.3  1.7%  (36.6)  (4.2)% 
As of and for the six months ended June 29, 2018$1,806.2    $686.7    $837.5   

__________

(1)  Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of growth due to factors such as price, product mix and volume.
(2) Represents the incremental sales, orders and order backlog from the acquisition completed in our Air and Gas Handling segment, and incremental sales for acquisitions completed in our Fabrication Technology segment.


Colfax Corporation
Condensed Consolidated Balance Sheets
Dollars in thousands, except share amounts
(Unaudited)

 June 29, 2018 December 31, 2017
ASSETS   
CURRENT ASSETS:   
Cash and cash equivalents$257,700  $262,019 
Short term investments  149,608 
Trade receivables, less allowance for doubtful accounts of $29,320 and $31,488986,271  970,199 
Inventories, net490,159  429,627 
Other current assets213,350  258,379 
Total current assets1,947,480  2,069,832 
Property, plant and equipment, net510,695  552,802 
Goodwill2,505,377  2,538,544 
Intangible assets, net960,154  1,017,203 
Other assets538,997  531,316 
Total assets$6,462,703  $6,709,697 
    
LIABILITIES AND EQUITY   
CURRENT LIABILITIES:   
Current portion of long-term debt$6,180  $5,766 
Accounts payable586,276  587,129 
Customer advances and billings in excess of costs incurred149,019  145,853 
Accrued liabilities333,046  358,632 
Total current liabilities1,074,521  1,097,380 
Long-term debt, less current portion1,067,415  1,055,305 
Other liabilities783,327  829,748 
Total liabilities2,925,263  2,982,433 
Equity:   
Common stock, $0.001 par value; 400,000,000 shares authorized; 118,925,914 and 123,245,827 issued and outstanding119  123 
Additional paid-in capital3,100,201  3,228,174 
Retained earnings914,634  846,490 
Accumulated other comprehensive loss(698,680)  (574,372) 
Total Colfax Corporation equity3,316,274  3,500,415 
Noncontrolling interest221,166  226,849 
Total equity3,537,440  3,727,264 
Total liabilities and equity$6,462,703  $6,709,697 


Colfax Corporation
Condensed Consolidated Statements of Cashflows
Dollars in thousands
(Unaudited)

 Six Months Ended
 June 29, 2018 June 30, 2017
    
Cash flows from operating activities:   
Net income$70,821  $99,962 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:   
Depreciation, amortization and impairment charges71,958  68,606 
Stock-based compensation expense12,835  11,931 
Non-cash interest expense2,243  2,170 
Loss on short term investments10,128   
Deferred income tax benefit(19,656)  (3,700) 
Gain on sale of facility(7,839)  (11,734) 
Loss on sale of business4,337   
Changes in operating assets and liabilities:   
Trade receivables, net(65,186)  (59,419) 
Inventories, net(53,993)  (29,932) 
Accounts payable19,878  5,470 
Customer advances and billings in excess of costs incurred17,462  (1,352) 
Changes in other operating assets and liabilities(29,326)  16,556 
Net cash provided by operating activities33,662  98,558 
Cash flows from investing activities:   
Purchases of fixed assets(24,808)  (26,755) 
Proceeds from sale of facility14,634  16,106 
Acquisitions, net of cash received(50,912)  (49,999) 
Sale of business, net18,603   
Sale of short term investments, net139,480   
Net cash provided by (used in) investing activities96,997  (60,648) 
Cash flows from financing activities:   
Payments under term credit facility(56,250)  (28,126) 
Proceeds from borrowings on revolving credit facilities and other504,518  384,257 
Repayments of borrowings on revolving credit facilities and other(422,361)  (720,473) 
Proceeds from borrowings on senior unsecured notes  374,451 
Proceeds from issuance of common stock, net3,090  3,134 
Common stock repurchases(143,902)   
Other(838)  (8,329) 
Net cash (used in) provided by financing activities(115,743)  4,914 
Effect of foreign exchange rates on Cash and cash equivalents(19,235)  7,671 
(Decrease) increase in Cash and cash equivalents(4,319)  50,495 
Cash and cash equivalents, beginning of period262,019  221,730 
Cash and cash equivalents, end of period$257,700  $272,225 
    

Kevin Johnson, Vice President
Colfax Corporation
+1-301-323-9090
investorrelations@colfaxcorp.com

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